CANBERRA, Sept 5 (Reuters) - Australia on Wednesday abandoned plans to pay the country's dirtiest power generators billions of dollars to shut down production after failing to agree a price, but the government said the move would not derail its carbon reduction policy.

Resources Minister Martin Ferguson said the government and generators could not agree on a price after more than a year of negotiations with five power companies to close down 2,000 megawatts of pollution-intensive power by 2020.

Australia wants to cut carbon emissions by 5 percent of year 2000 levels by 2020.

"The minus 5 percent target is being reached by the work of the carbon price," Prime Minister Julia Gillard told reporters in Perth, adding that the government was not prepared to pay the high prices asked by the generators.

"We always said we would aim for value for money. We didn't get a value-for-money proposal," she said.

The decision is the second big change to Australia's emissions reduction scheme, after the government last week said it would link its emissions trade scheme, due to start in 2015, with the European emissions trade scheme.

On July 1, Australia imposed a carbon tax on polluters, starting at A$23 per tonne of carbon dioxide.

The companies involved in the latest negotiations were Alinta Energy, HRL, Hazelwood Power Partnership, RATCH-Australia and TRUenergy.

"BREACH OF FAITH"

International Power GDF Suez Australia owns the majority of the 1,740 megawatt brown-coal fired Hazelwood power station in southern state Victoria, which belches out 16 million tonnes of carbon pollution a year, or about 3 percent of Australia's total emissions.

TRUenergy, a wholly owned unit of Hong Kong's CLP Holdings , owns the 1,480 MW Yallourn power station in Victoria and had planned to float its Australian unit in November.

Sources familiar with CLP's plan told Reuters last month that the initial public offering could be pushed back to the first quarter of 2013, and that the company was also weighing other options to finance its operations in Australia.

TRUenergy said it had a realistic assessment of the value of its power assets. Yallourn provides about 20 percent of the electricity needs of southern Victoria state.

"With the conclusion of the contract for closure process we will continue to focus on operating Yallourn to provide competitive and reliable electricity to the national electricity market," a spokeswoman said.

The Australian Greens, who support Gillard's minority government, were angered by the policy shift and said the decision was a breach of faith on climate policy.

"It really goes against the spirit of everything we've been trying to do, and that is close down the dirtiest power stations in Australia," Greens leader Christine Milne told reporters.

Australia's Energy Supply Association said Wednesday's decision was inevitable, given uncertainty over climate policy and opposition promises to abandon the price on carbon if it wins an election, due in the second half of 2013.

"Without bipartisan agreement on Australia' climate change policies, it was always going to be hard for power station owners and the government to come to terms," association chief executive Matthew Warren said.

Australia introduced a carbon tax on July 1 and plans to move to a floating carbon price from July 2015, linked to the European emissions trading scheme, as part of its efforts to fight carbon emissions and combat global warming.

Australia accounts for just 1.5 percent of global emissions but is the developed world's biggest per-capita carbon emitter, due to a reliance on burning coal to generate about 80 percent of the country's electricity.